A consumer-ready cryptocurrency will be issued by a central bank within the next five years, according to a report by technology giant IBM and central banking think tank OMFIF.
The report has found that policymakers at central banks around the world are already seriously exploring the idea of creating and issuing a cryptocurrency, which IBM terms a central bank digital currency (CBDC), making a five-year timeframe very plausible.
This would take the form of a digital currency that would be able to be used in the same way and locations as traditional cash.
However, it is unlikely to be a member of the G20 that makes the first move into CBDCs. The report instead predicts that the move will be made by a small economy as part of a wider policy objective where the cryptocurrency launched by the central bank is used to achieve a very specific goal.
“The concept of retail CDBCs has moved rapidly from being the thought experiment of technical experts and philosophers to the subject of boardroom debates focused on tangible, near-term reforms,” said Philip Middleton, OMFIF deputy chairman.
“When senior central bankers speculate publicly about the possibility of a universal digital currency, it is a happy endorsement of the reports’ timeliness.”
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IBM and OMFIF have come to the conclusions after conducting in-depth surveys with officials at 23 central banks, across both emerging and advanced economies.
A central bank cryptocurrency in the age of Libra
The prediction comes as the private sector increasingly moves into the world of currencies.
This was initiated by the emergence of cryptocurrencies, particularly Bitcoin, however increasingly the space is being explored by big technology companies, most notably Facebook through its soon-to-be-released Libra.
The report highlights that such developments may, if left to continue unregulated, undermine the sovereignty of central banks, a concern voiced by more than half of those surveyed.
As a result, central banks are likely to increasingly be exploring CBDCs to avoid being left behind.
“Central banks surveyed are interested in positioning themselves to launch their own retail CBDCs, as the findings of this report make clear,” said Saket Sinha, global vice president, IBM Blockchain Financial Services.
“Large banks and technology companies will have a major role to play as new public private partnerships are formed to promote interoperability, create services, and extend financial inclusion.”
However, a central bank-backed cryptocurrency would not be without its challenges, with 83% expressing concerns over the possibility of digital bank ‘runs’ on the currency that could damage stability.